The government has announced plans to relax invoice finance rules early next year, which will be music to the ears of many SMEs. 

Britain currently suffers from a bad late-payment culture, where UK SMEs wait an average of 72 days for their invoices to be paid – a day more than one year ago. An estimated £26bn is owed to Britain’s small businesses in unpaid invoices.

The impact of the recession has meant that the smallest businesses now wait an average of 11 days longer for payment than they were even at the recession’s height.

“This was taken as a protective measure to safeguard their financial positions during the credit crunch, and it became the norm for many businesses to pay late,” explains John Atkinson, head of commercial business at Hitachi Capital Invoice Finance.

“In essence, the longer that firms are able to hold on to money, it allows them to strengthen their position and make funds work harder. But it’s Britain’s small businesses that have felt the brunt of this.”

This could soon change. So-called “bans on assignment” rules, which prevent smaller suppliers from using invoice finance, are often imposed by bigger businesses when dealing with SMEs. 

While this has hampered the growth of small firms for a number of years, the rules are set to change as part of the government’s wider Small Business, Enterprise and Employment Act. A number of new measures are being introduced in 2016 to tackle late payments.

“This change is long overdue and is an extremely positive step for the growth of Britian’s SMEs,” adds Atkinson. “Unpaid invoices are the biggest asset some small businesses have and the law has been unfairly stacked against them until now.”

Read more about invoice finance here:

• The UK’s key invoice finance players
• Invoice finance: Dispelling the myths
• Invoice finance: Is it for you?
  

Overall, invoice finance is used by more than 44,000 UK businesses to fund working capital and alleviate the knock-on effect of late payments.

Invoice finance companies provide businesses with the cash up front, based on the value of any unpaid invoices, minus a small fee for collecting the debt. For those small businesses experiencing cash flow issues due to late payment, new options will soon exist which could help them to grow and plan ahead with a more confident cash position.

“For larger firms that practice late payment, time is running out and they now need to adapt practices or risk suffering reputational damage in the future. 

“The logical next step might be for the government to outlaw those businesses that pay beyond 90 days. Research conducted amongst our clients revealed that some of the worst offenders take up to 121 days to pay which is simply not acceptable. Late payment and ‘bans on assignment’ have been allowed to hamper that growth and this is a positive first step for businesses.”

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